Costing and Taxation · Ch 1 — Introduction to Cost Accounting
Meaning of Cost, Costing and Cost Accounting
Meaning of Cost, Costing and Cost Accounting
Every organisation that produces goods or renders services needs to know what those goods or services actually cost to make or deliver. This chapter begins with three foundational terms — Cost, Costing, and Cost Accounting — which are related but not identical, and are very often used loosely, as if they mean the same thing. WBCHSE's Costing and Taxation syllabus draws on the same cost-accounting principles that also form part of Accountancy and Economics in the CBSE/NCERT Commerce curriculum, so a clear grip on these basics pays off across your Commerce stream generally, not only in this subject.
Cost
Cost is the monetary measurement of the resources — materials, labour, and expenses — that are sacrificed or used up to produce a specific product, complete a specific job, or render a specific service. It answers the question "how much did it take, in money terms, to get this done?"
Cost is always expressed for something specific — the cost of a product, of a job, of a process, of a service — it is never a cost in the abstract, floating free of any object.
Costing
Costing is the technique and process of ascertaining cost. It refers to the set of principles, methods, and procedures followed to find out, as accurately as possible, what a product, job, or service has actually cost.
Costing, in other words, is the practical, applied side of cost determination — the actual procedure and arithmetic used to arrive at a cost figure.
Cost Accounting
Cost Accounting is a formal, systematic system of recording, classifying, allocating and analysing cost data, and of reporting cost information to management on a regular basis, for the purposes of cost ascertainment, cost control, cost reduction, and managerial decision-making.
Cost Accounting is broader than Costing. Costing is only the technique of arriving at a cost figure, while Cost Accounting is the entire system built around that technique — the accounting records, the classification structure, the periodic reports, and the use of that information for control and decision-making.
- Cost — the amount (in money) sacrificed for a specific object.
- Costing — the technique/process used to find that amount.
- Cost Accounting — the full system that records, classifies, controls, and reports cost information, built around the technique of costing.
The table below sets the three terms side by side so the distinction is easy to revise quickly.
| Basis | Cost | Costing | Cost Accounting |
|---|---|---|---|
| What it is | An amount (in money) | A technique/process | A formal system |
| Scope | Narrowest — a single figure | Wider — the method used to arrive at that figure | Widest — records + control + reporting + decision support |
| Nature | Static — a result | Dynamic — an activity | Dynamic — a continuing system |
| Purpose | Expresses expenditure incurred | Ascertains cost accurately | Ascertains cost AND controls/reduces it AND reports it to management |
The monetary measurement of resources (materials, labour, expenses) sacrificed or used up to produce a specific product, job, process, or service.
The technique and process of ascertaining cost — the set of principles, methods and procedures followed to find out what something has actually cost.
A formal system of recording, classifying, allocating and analysing cost data and reporting it to management, for cost ascertainment, cost control, cost reduction and decision-making.